The Falling Cost of Solar Energy: Reasons and Implications | APT

With our world suffering from an environmental crisis, everyone would naturally want to find a way to help save it somehow. One proven way to help the environment is for us to make use of renewable energy sources, particularly solar energy. But even though there’s already that solution laid in front of us, somehow not everyone is still engaged with it. And the primary thing that holds everyone back is the belief that solar energy is expensive.

But here’s the thing: that belief is actually inaccurate. In fact, in our current time right now, the costs of solar energy are dropping — and they will continue to drop in the future.

Why Are Solar Energy Costs Dropping?

Over the last four decades, the costs of solar energy products — in particular, solar photovoltaic modules — have dropped by 99%. That is quite the dramatic drop, and it’s even more dramatic to know that the costs we have right now will continue to fall in the years to come. And though this drop is quite the good news, there is still one question that hasn’t been really addressed. And that is: what exactly are the reasons and factors for this dramatic drop?

Energy Policy Study: Looking at the “Low Level” and “High-Level” Factors

A team at MIT, which consists of Associate Professor Jessika Trancik, postdoc Goksin Kavlak, and research scientist James McNerney, conducted a study on this topic of the falling solar energy costs for the journal Energy Policy, which was published in December 2018. In their paper, they decided to look at the technology-level — or “low-level” — factors that have affected the cost by changing the modules and manufacturing process. Over the years that solar cell technology has been around, it has improved greatly. Solar cells right now are much more efficient at converting sunlight to electricity. Trancik then explains that factors like this are under the category of low-level mechanisms that deal with the physical products themselves.

In addition to that, the team also estimated the cost impacts of “high-level” mechanisms, such as learning by doing, research and development, and economies of scale. Some examples for this are the way improved production processes have cut the number of defective cells produced, which leads to improved yields, and the fact that larger factories have led to significant economies of scale.

This particular study covered the years 1980 to 2012, which is the period when the module costs fell by 97%. With this particular timeline, the team was able to discover that there were six low-level factors that accounted for more than 10% each of the overall drop in costs. And additionally, four of those factors accounted for about 15% each. With these findings, Trancik explains that the results point to “the importance of having many different ‘knobs’ to turn, to achieve a steady decline in cost. In other words, if there are more different opportunities to reduce costs, then it will be less likely to be exhausted quickly.

The Taghizadeh-Hesary, Yoshino, and Inagaki Study

In 2018 as well, another study was conducted, this time by Taghizadeh-Hesary, Yoshino, and Inagaki. And for this particular study, they analyzed the price reduction in solar modules by examining the impact of five economic factors on solar module prices in countries from 1997 to 2016. The five countries were China, Germany, Japan, Korea, and the United States. And the five factors were wages, real interest rates, exchange rates, research and development (R&D) expenditure, and oil prices.

Taghizadeh-Hesary, Yoshino, and Inagaki examined the correlation between solar module prices and five economic factors using an econometric method. They were able to discover five key findings. These are as follows:

The wages don’t have a big impact on solar module prices. This suggests that the solar module industry is not labour-intensive.
Real interest rates have a significant impact on solar module prices in Germany, Japan, and the U.S. This suggests that the solar module industry is capital-intensive.
Exchange rates have a big impact on the solar module prices in Germany, Korea, and the U.S.
R&D expenditure has a statistically significant impact on the solar module prices in China, Korea, and the U.S. This suggests that government investment in solar PV R&D expenditure has a positive impact on solar module manufacturing efficiency.
Oil prices have a great impact on solar module prices in China, Japan, and the U.S.

Based on these five findings, we can see that if the renewable energy industry were to excel, then the government should exert a lot of effort. For one thing, they should provide industries with low-interest finance so that the renewable business will accelerate. And for another, they should expand R&D expenditure toward renewable energy technology. This is because the technological advancements required through R&D enhance module performance efficiency, and this reduces the cost of the product.

Falling Cost of Solar Energy: What Are the Implications?

Solar energy will become cheaper than fossil fuels by 2020.

The first obvious implication of the falling cost of solar energy is that soon enough, this form of renewable energy will finally be cheaper than traditional fossil fuels. According to IRENA’s Renewable Power Generation Costs in 2017, the cost of PV electricity has fallen by 73% since 2010 while the cost of generating power from onshore wind has fallen by 23% around the same time. And if the cost falls even further, then the organization says that all renewable technologies should be competitive on price with fossil fuels by 2020.

To elaborate on this point further, we should compare the average cost of renewable energy and fossil fuels. Globally, onshore wind schemes are now costing an average of $0.06 per kWh, and the cost of solar PV is down to $0.10 per kWh. Meanwhile, the cost of electricity generation based on fossil fuels usually falls in a range of $0.05 to $0.17 per kWh.

So, if IRENA is right and the prices for renewable energy will keep falling, then by 2020, onshore wind and solar PV projects could be consistently delivering electricity for as low as $0.03 per kWh. That will be quite an impressive feat.

It is now cheaper than running existing coal.

While it’s great to hear that solar can beat fossil fuels in the future, right now, we can relish in the fact that solar has actually beaten coal already. A new report by Carbon Tracker reveals that 42% of global coal capacity is currently unprofitable and the U.S. could save $78 billion by closing coal-fired power plants.

Moreover, all over the U.S., renewable energy is beating coal on cost. The price to build new and solar has fallen below the cost of running existing coal-fired plants in Red and Blue states. In addition to that, Lazard’s annual Levelized Cost of Energy (LCOE) analysis reports that solar PV and wind costs have dropped a whopping 88% and 69% since 2009, respectively. Meanwhile, coal and nuclear costs have decreased only by 9% and increased by 23%, respectively. Even without considering the current subsidies, renewable energy costs can become considerably lower than the marginal cost of conventional energy technologies.

Basically, all of this means that customers can save money when utilities replace existing coal with wind or solar. And with the prediction that clean energy generation will only continue to fall, that might actually become a reality sooner than we thought.

Takeaway: Falling Costs of Solar Energy Boosts Global Climate Action

With the implication that solar energy will become really cheap in the years to come, it’s understandable if we get really hopeful of the future. As was already mentioned earlier, climate change is real and happening in our time right now, and if we want to put an end to all these environmental problems, we should do something. Solar energy is one of the best things that we can do right now, and it’s great to hear that more people have resorted to this form of energy source. But to hear that in just a year or so, solar will be so cheap that it will be even more accessible for everyone? Well, that’s a piece of even better news.

That is why right now, we’re understandably hopeful of what tomorrow can bring. We’re hopeful that governments all over the world will fund the renewable energy industry so that better technologies will be developed, thus lowering the prices of the products and services themselves. We’re hopeful that everything will go to plan and that the cost of solar energy will continue to fall. And of course, we’re hopeful that all the falling prices of solar energy will really lead us to the restoration of our planet’s glory.

Right now, everything is still up on the air. But with all this good news we’ve heard about the falling cost of solar energy, we can dare say that we’re on our way there.

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